When investors look at options for additional retirement income, they often consider taking on more portfolio risk by increasing their equity allocation. But the relationship between a change in pre-tax asset allocation and after-tax income isn’t a simple one.

To do this, convert a dollar deposited in a tax-advantaged account to an equivalent amount deposited in a taxable account that would generate the same after-tax retirement income. This is the tax equivalent wealth of the accounts.

“The asset location decision between the tax equivalent wealth accounts can be considered independent of the asset allocation decision,” says Westmacott.

Using a simple portfolio example, he illustrates the different contribution amounts necessary in both an RRSP and a taxable account to get the same after-tax benefit, accounting for the value of deferred tax within the RRSP and the benefit of contributing pre-tax dollars.

Not only is the difference in amounts significant, but the tax-equivalent asset allocation differs from the pre-tax asset allocation.

The bottom line: Comprehensive financial planning must account for the interplay of all factors that contribute to retirement income, says Westmacott.